The Rewards of Dishonesty

March/April 2003

ByJoseph T. Wells, CFE, CPA

Lies told in a heartbeat can have permanent and irreversible consequences. One instance of rationalized dishonesty can lead to a pattern of fraud.

About 10 years ago, I was instructing a CFE Exam preparatory seminar in Newark, N.J. There were about 50 people in the class. As is customary for such events, attendees signed in each day for the three-day course to obtain continuing education credit.

During one of the breaks on the third day, a student approached me as I was standing alone at the end of the hall. Quietly, he said, "There are two CPAs signed in from the same firm. But one of them, Wally, hasn't been here since the first day. His friend Jack is signing in for him."

When I returned to class, I casually inspected the sign-in sheet. Sure enough, it appeared that Jack's and Wally's signatures were signed by the same hand and by the same pen. I waited until just before lunch. Then, while the class was working an exercise, I stood before them pretending to look over the sign-in sheet.

With my best confused look, I said, "Where is Wally?" I could see Jack sinking in his seat. "I don't understand," I said. "I met Wally on the first day along with Jack. And I just noticed that he is signed in for the class but he is not here." When I looked at Jack, he sank lower. "Jack, you work with Wally. Where is he?"

Now turning red in the face, Jack mumbled, "I am not sure." Then I pretended to study the two signatures. "Jack, it looks like both you and Wally signed with the same pen," I observed. "Did you loan him yours when the both of you signed in this morning?"

Jack sat in stone silence, not knowing what to say. After an uncomfortable pause, I simply said, "Jack, please see me when the class ends for the day." But I was not surprised when Jack did not show; he left immediately at the break. I later instructed the staff not to issue certificates of completion to either CPA. Then I went back to work and thought no more about it.

Perhaps a year later, I saw Wally's name again. It was on the letter I was about to sign congratulating him on passing the Uniform CFE Exam. (Even though I am not involved in the certification process, I have traditionally signed all these letters personally.) But my pen stopped upon seeing his name.

At first, I thought: Wally's faked attendance at the prep seminar was not the worst of sins. He was probably busy or got called away on assignment. And because I embarrassed his friend Jack in front of the class, they would probably never try to pull such a bone-headed stunt again.

But I could not convince myself of my own logic; so I called the chair of the certification committee and told her what happened. Because the certification had not been formally issued, the three-person committee unanimously voted to withdraw it. Instead, Wally was sent a letter along with a refund of his exam fee and we permanently barred him from certification.

Not surprisingly, Wally was upset. I finally agreed to talk to him by telephone and let him plead his case. He was called away on an important assignment, Wally allowed. But Wally was hard-pressed to give a logical reason why he asked his friend to fake the seminar attendance records.

Exasperated, Wally finally said, "I am an honest person. If this had been a big deal, I would have never lied about it." I smiled into the phone and said, "Wally, let me give you a different point of view: If you would lie about something this small, why wouldn't you lie when something big is at stake?" Wally could not explain that one, either.

Permanently being barred from certification may seem like exceedingly harsh punishment for such an offense. But organizations must look past the individual to consider the common good of the members and act to protect their reputations. To be blunt, the certification committee had to know that the media would have had a field day with the notion that an anti-fraud organization knowingly admitted a cheat to its esteemed ranks.

A larger question is why any reasonable professional - duty-bound to act ethically - would knowingly and willingly engage in such conduct? We will try to answer that question later.

Related Articles

Financial statement fraud usually involves overstating assets, revenues and profits and understating liabilities, expenses and losses. However, the overall objective of the manipulation may sometimes require the opposite action.

An effective embezzlement investigation requires the interplay of several diverse elements. There must be a balance between the rights and responsibilities of both the employer and the employee. This article provides 10 actions to avoid even more revenue loss during the fraud examination and litigation.